4G newcomers may disrupt with free data over Intranet: HSBC

Reliance Jio has only launched its 4G services for its employees and there is no clarity on their commercial launch plans, which is widely expected to be around April.Kalyan Parbat | ET Bureau | March 16, 2016, 00:20 IST

Reliance is pretty much in the clear and there is little in the allegations that will stand up to scrutiny. This white gives way to shades of grey.Kolkata: Newcomers in the 4G space could unleash disruptive free data offers by leveraging a potential loophole in the telecom regulator’s discriminatory pricing rules, which could help churn customers away from incumbents, said brokerage HSBC.

“The (telecom) regulator recently suggested that its rules prohibiting differential pricing of data will not apply to intranet-based offering of telcos, which would (thereby) allow 4G entrants to have a B2B model by charging content providers/e-commerce players a carriage fee, and in turn, subsidise subscriber data services,” said HSBC in a note to clients.

An intranet’ can be created by a company without directly connecting to the Internet. Data services offered over it can only be accessed by employees of the organisation owning the intranet and not by the general public.

According to HSBC, new 4G entrants can offer free data over their intranet by storing all content on its servers.

The foreign brokerage didn’t name the new entrants but appears to allude to Reliance Jio Infocomm and its combination with Reliance Communications, both of whom are slated to commercially launch 4G services later this year. The global brokerage expects the new entrants to commercially launch services in the metros in the next couple of months to retain first-mover advantage on free data offerings over intranets. But the brokerage has ruled out a pan-India rollout before September.

The Telecom Regulatory Authority of India (Trai) had recently weighed in on the side of net neutrality and barred discriminatory pricing of data services. It, however, exempted data services offered on a closed user network, or intranet, from the regulation, leading to calls for clarification. Net neutrality backers and advocates of a free Internet say the exemption is a loophole that could be used by telcos to offer data services at differential rates. They say this may undo Trai's objective of disallowing discriminatory pricing of Internet services.

“Though we await more clarity from the regulator on the scope of telco intranet offerings, we believe the following options exist: (a) cheap/free data… (b) enhancing value proposition and charge fixed fee: aggregating intranet with content around movies/sports and enhancing subscriber value proposition,” HSBC said.

It added that this approach may allow 4G entrants to ask for a fixed fee that is not directly linked to data usage to target the medium/high paying data users and churn subscribers from top incumbent telcos.

HSBC said the new entrants have the advantage of leveraging better data spectrum, particularly in the 800 MHz band and their ability to offer better content deals since they directly own content, which would allow them to source it more cheaply from other content providers as well, given their bargaining power. “On the other hand, incumbent telcos have not focused much on content and if 4G entrants were to launch soon, incumbents may experience difficulties.”

But the delay in the launch of the newcomers means they have lost out on the first-mover advantage on this front to incumbents. If they continue to delay, incumbent telcos may replicate similar offerings on intranet, which is why, “we do not rule out the possibility of a launch by 4G entrants in metros over the next couple of months,” said HSBC.

Reliance Jio has only launched its 4G services for its employees and there is no clarity on their commercial launch plans, which is widely expected to be around April. This has already given rivals Bharti Airtel, Vodafone India and Idea Cellular more time to ramp up their own high-speed broadband offerings.

Also, the advantage for the new entrants will depend on the penetration of 4G handsets, which at present is less than 5%, or around 40 million, of the unique wireless subscriber base and even by year end, is not expected to be more than around 10% of base (around 80 million), as per HSBC estimates.

Several people ET spoke with about Ericsson’s India operations, including its current and former employees, said the Stockholm-based firm has reduced headcount in the last one year or so across functions, in line with its global restructuring.